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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
The European Union (EU) was created by something called the Maastricht Treaty on November 1, 1993 after having been debated for years. It was originally formed by 12 countries, and has since expanded far and wide across Europe and beyond.
And it was a really stupid idea.
The reason? The countries that signed up for it had been sovereign, independent nations for something like a 1,000 years in some cases. They fought wars with each other, competed against each other in sporting events, and they all generally hated each other’s guts.
And all of that deep generational hatred doesn’t just go away when a bunch of politicians sign a piece of paper. Just ask the Jews and Palestinians.
But they did it anyway. From the first day I heard about it, I doubted that it would last. I gotta hand it to them, though. It’s lasted for 23 years. Way longer than I thought it would.
When I read about it, I found that the #1 reason for the exit was because it was deemed a threat to British sovereignty. What a shock, right?
And it looks like there are some pretty big cracks opening up in the EU as other countries talk about putting their own “BREXITS” up to a popular vote.
What to Do?
So what should we do about this? How about try to figure out a) what the impact will be on real estate over here and b) figure out a way to take advantage of it.
I read an article recently that started to do both. It began by analyzing the impact it’s already having on U.S. real estate.
Even though Britain never adopted the Euro, the article stated that one of the most immediate effects of the move was to send interest rates on U.S. government debt down sharply.
They said that’s going to put downward pressure on mortgage rates down the road, because mortgage rates behave like gas prices, which typically move after some delay, especially on the way down.
If this happens, they think we’ll see higher home prices because low rates enable homebuyers to afford a more expensive home with the same income.
How to Take Advantage of It
Here’s the interesting part of the article...
The author believes that Britain’s exit from the EU could lead to added demand for American real estate, especially in major cities like New York and Los Angeles.
And that since international investors have been increasing their holdings in the U.S. over the past several years, they have gained a better understanding of the American real estate market’s profitability potential.
And that means investors are primed to look at the U.S. real estate market as a reasonable alternative to the London market, which has long been a haven for the global rich to stow their excess wealth.
The author also thought that with all the uncertainty over what the rules will look like for foreign investment after the Brexit world, many investors will be looking to reduce their exposure to the U.K.
The reason?
The U.S. government made international investment in America easier by easing the tax burden on many of these deals.
For example, a non-U.S. investor can now own up to 10% of a REIT before incurring federal taxes – up from 5%. That December 2015 action also exempts certain foreign pension funds from taxes from their U.S. property holdings.
Especially if you live in a major U.S. economic center, this means that it’s reasonable to expect higher real estate prices, and that goes for commercial real estate as well as residential.
So it looks like real estate here is getting another boost. Which is a good thing.
Care to Share?
What’s your take on Brexit? Share in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.